May 1, 2014
Executives
Kevin Mitchell - VP, IR Paresh Patel - Chairman and CEO Richard Allen - CFO Scott Wallace - President, Property and Casualty Insurance
Analysts
Dan Farrell - Stern Agee Matt Carletti - JMP Securities Casey Alexander - Gilford Securities Arash Soleimani - Keefe, Bruyette & Woods Geoff Dancy - Cutler Capital Management
Operator
Greetings and welcome to HCI First Quarter 2014 Earnings Conference Call. At this time, all participants are in a listen-only mode.
A brief question-and-answer session will follow the formal presentation. (Operator Instructions) As a reminder, this conference is being recorded.
I would now like to turn the conference over to your moderator, Mr. Kevin Mitchell.
Thank you. You may begin.
Kevin Mitchell
Thank you, and good afternoon. With me today are Paresh Patel, our Chairman and Chief Executive Officer, Richard Allen, our Chief Financial Officer and Scott Wallace, President of the Property and Casualty Insurance division.
Following Paresh’s opening remarks Richard will review our financial performance for the quarter and then turn the call back to Paresh for an operational update and business outlook. Finally we will open up the call to your questions.
To access today’s webcast, please visit the Investor Relations section of our corporate Web site at www.hcigroup.com. Before we begin, I would like to take the opportunity to remind our listeners that today’s presentation and responses to questions may contain forward-looking statements made pursuant to the Private Securities Litigation Reform Act of 1995.
Words such as anticipate, estimate, expect, intend, plan and project and other similar words and expressions are intended to signify forward-looking statements. Forward-looking statements are not guarantees of future results and conditions but rather are subject to various risks and uncertainties.
Some of these risks and uncertainties are identified in the Company’s filings with the Securities and Exchange Commission. Should any risks or uncertainties develop in to actual events these developments could have material adverse effects on the Company’s business, financial conditions, and results of operation.
HCI Group, Inc. disclaims all the obligations to update any forward-looking statements.
Now I would like to turn the call to Paresh Patel, our Chairman and Chief Executive Officer, Paresh?
Paresh Patel
Thank you, Kevin and good afternoon everyone. As Richard will expand on shortly we reported strong results for our first quarter ended March 31, 2014.
Among the highlights of the quarter were; first, in January we were the first admitted homeowners’ insurance carrier to offer flood insurance in the state of Florida; two, in March we initiated a share buyback program and during the quarter we repurchased and retired 210,836 shares of HCI common stock at a total cost of $7.8 million, or an average price of approximately $37 per share. We also announced the cancellation of the conversion feature of our 7% Series-A preferred shares listed on the NASDAQ as HCIIP and voluntary delisted them from the NASDAQ.
Conversion of these shares and delisting simplifies our capital structure as well as reduce our listing costs. Before I go on I would like to invite our CFO, Richard Allen to take us through our financial performance for the first quarter.
Richard?
Richard Allen
Thank you, Paresh and good afternoon everyone. For the first quarter of 2014, income available to common stockholders totaled $17.6 million or $1.44 diluted earnings per common share.
This is an increase of 13.5% and 9.9% respectively from a $15.5 million or $1.31 diluted earnings per common share in the fourth quarter of 2013 and down from the $20.4 million or a $1.81 diluted earnings per common share in the first quarter of 2013. Primary drivers in the change in 2014 from the first quarter of 2013 are; quarterly reinsurance cost for the treaty year starting June 1 of 2013 increased by approximately $6 million per quarter over the prior treaty year.
Debt service, interest and cost increased by approximately $1.9 million. Policy acquisition cost recognized in the first quarter of 2014 includes commissions on premium taxes on the policies originally assumed from Citizens in November 2012.
Other operating expenses include recognition of approximately $3.3 million in additional compensation cost and related expenses including $1.7 million of stock-based compensation expense. Gross premiums earned in the first quarter of 2014 increased 2.7% to 93.9 million from 91.4 million in the prior quarter and 13.7% from the 82.5 million reported in the first quarter of 2013.
The increases were primarily due to the renewal of policies assumed from Citizens in Novembers of 2012 and ’13. Premiums received in the first quarter of 2014 totaled 29.3% of gross premiums earned.
This compares with 30.6% in the fourth quarter of 2013 and 26.6% in the first quarter of 2013. Benefits of the multiyear reinsurance treaties recognized in the first quarter and for the treaty year-to-date are $5.4 million and $18 million respectively.
Net premiums earned for the first quarter of 2014 increased 4.7% to 66.4 million from 63.4 million in the fourth quarter of 2013, and increased 9.6% from the 60.6 million in the same year ago period. We have increased the fixed income position in our investment portfolio and our position in dividend paying equity securities.
This has improved our net investment income in the first quarter of 2014 to $1.1 million from $0.7 million in the prior quarter and $0.1 million in the first quarter of ’13. Loss and loss-adjustment expenses during first quarter of 2014 were 18.6 million compared with $17.3 million in the fourth quarter of 2013 and 15.9 million in the first quarter of 2013.
The increase in 2014 is primarily the results of some torrential rain storms in Palm Beach and Martin Counties in January. In addition, the increase from the first quarter of 2013 was primarily related to the increased policy exposures related to the prior assumptions.
We consistently monitor claim activity for development and emerging trends and frequency, severity, and causes of loss for the potential impact on incurred losses and loss-adjustment expenses. Other operating expenses, which include a variety of general and administrative expense, totaled 9.5 million in the first quarter of 2014 compared with 12 million in the prior quarter and 6.1 million in the first quarter of 2013.
The decrease from the prior quarter was attributable to higher compensation and related cost in the fourth quarter of 2013. This accounts for approximately $1.3 million of the variance.
Interest expense from our senior notes totaled $2.6 million in the first quarter of 2014. The Company’s 3.875% convertible notes that were issued in December of 2013 were the main reason for the increase compared with 1.2 million in the prior quarter and 700,000 in the first quarter of 2013.
We are encouraged by our results for the first quarter of 2014. And we remain committed to increasing shareholder value in future periods.
Now with that, I’d like to turn the call back over to Paresh, Paresh?
Paresh Patel
Thank you, Richard. We were off to a strong start in 2014.
Our 26th consecutive quarter of profitability was marked by our highest quarterly net premium recorded since inception. The operation momentum continues to build.
Our core business again delivered profitable results as we remained focused on applying our strict underwriting standards and minimizing operating costs, at the same time providing our policyholders with the highest levels of service. Our overall strategic focus remains on property and casualty insurance as a leading provider in the State of Florida.
That said, we are excited about the opportunities presented in new markets like flood insurance, as well as in our other divisions Exzeo and Greenleaf Capital. We remain optimistic as we approach our reinsurance renewal date.
The market continues to provide signs of favorable development as we negotiate final terms and conditions. Other positive development is that we continue to deploy our large cash position within our investment portfolio and look forward to better returns in the month ahead.
In summary, our consistently profitable core business coupled with our strong cash position of almost $300 million allows us to patiently seek accretive growth opportunities as they arise. With that, we are ready to open your call for your questions.
Operator, please provide the appropriate instructions.
Question
and
Operator
At this time, we will be conducting a question-and-answer session. (Operator Instructions) Our first question is from Dan Farrell, Analyst.
Please proceed with your question.
Dan Farrell
Stern Agee
Paresh Patel
Thanks, Dan. By the way thank you for picking coverage on the company and the buy rating.
As far as the reinsurance program goes, we are obviously in very advanced stages of placing our 2014 reinsurance program. Generally speaking in the way of color, that per unit costs has dropped significantly, but we are also buying a greater number of units of insurance.
And we’re doing it for -- basically for two reasons, one is, as we’ve grown in the sizes of the company we need to buy more units, but secondly also the unit -- because the unit costs have come down so dramatically we’re buying more units just out of a abundance of caution. Having said that, the way this is going to flow out into our ongoing business is I think the -- our reinsurance cost amortized over 2014, should be very similar to that, that has been amortized over the previous year.
Dan Farrell
Okay. That’s helpful.
And then it’s probably difficult for you to sort of give any specific answers, but how do you think about the acquisition costs ratio going forward obviously the reinsurance can have an impact there? And I was just wondering if what we’re looking at right now is a reasonable run rate pr if that can bounce around?
Stern Agee
Okay. That’s helpful.
And then it’s probably difficult for you to sort of give any specific answers, but how do you think about the acquisition costs ratio going forward obviously the reinsurance can have an impact there? And I was just wondering if what we’re looking at right now is a reasonable run rate pr if that can bounce around?
Paresh Patel
Great question. Look, with regards to acquisition cost there’s been some conversation about the impact of clearing house et cetera.
And what is takeout versus growing business organically, et cetera. A very simple thing that we’ve done is that, we’ve actually started launching a new program that was developed by software division called Exzeo Proplet.
And what Proplet lets you do, it lets you quote policies in almost like a Google like manner very, very quickly. It is almost the exact opposite of what’s happening in the clearing house.
And so with this what we are able to do is, we are about to scale up our voluntary underwriting business in a big way without having the corresponding cost of underwriting staff and reviewing cost and all the other pieces that go with it. So, we can maintain our underwriting discipline, while pushing much greater volumes through and those systems they are coming online as we speak.
So from our perspective, I think we are looking at policy acquisition costs, notwithstanding things like salary raises or those kinds of things or higher taxes or higher real estate or issuance cost that it should stay roughly around the same levels as they have in the past.
Dan Farrell
Okay, alright. Great.
That’s very helpful. Thank you.
Stern Agee
Okay, alright. Great.
That’s very helpful. Thank you.
Operator
Our next question comes from Matt Carletti with JMP Securities. Please proceed with your question.
Matt Carletti
Hi, thanks. Good afternoon.
Paresh you mentioned in one of your prior answers kind of just touched on the clearing house and has done impressive late kind of talking about how it has been a slow start. And I guess there’s been some, a lot of questions about just kind of the take up rate and the success of it.
Just curious, I mean I know you guys have elected at least at this point not to participate, just curious can you update us on your thoughts and what you are seeing?
JMP Securities
Hi, thanks. Good afternoon.
Paresh you mentioned in one of your prior answers kind of just touched on the clearing house and has done impressive late kind of talking about how it has been a slow start. And I guess there’s been some, a lot of questions about just kind of the take up rate and the success of it.
Just curious, I mean I know you guys have elected at least at this point not to participate, just curious can you update us on your thoughts and what you are seeing?
Paresh Patel
Yes, Matt. Simple thing is obviously we are not participating yet, but I note the -- it’s an article that was written in the Insurance Journal.
Scott Wallace
Yes.
Paresh Patel
On April 21st, I think Scott can talk a little bit more about that. In terms of what it tells you is what’s going on inside the inner work in the clearing house.
The -- getting double evidence we get from talking to our marketing folks in the field et cetera and from talking to agents is that the clearing house is a offer -- a binding offer of coverage and not a quoting tool. So before you can even get a price, you have to answer about 100 questions and it takes about 30 minutes to work your way through that.
So it becomes a very labor intensive item for agents and they are not necessarily happy about it, shall we say, yes. And in that context what we have started launching is like I said this -- our new Proplet application that we’ve licensed from Exzeo.
And in that tool you can basically get a quote in about a minute. So you can clearly -- and that difference is clearly having an effect in terms of activity.
Matt Carletti
Got you. Is that live yet did it just go live or it will soon go live?
JMP Securities
Got you. Is that live yet did it just go live or it will soon go live?
Paresh Patel
It’s been on a limited release.
Scott Wallace
It’s been introduced on a limited basis.
Paresh Patel
Yes. And I think Scott rolled it out to about a dozen agents from the data we are seeing I think, the dozen agents or so have been quoting like -- they’re quoting of policies as jump anywhere between fivefold and 20-fold from getting this tool.
Matt Carletti
Wow. That’s great.
And then my other question is related to the flood initiative, can you just update us on kind of, where it stands in the progress, I know it’s just kind of starting to rollout and particularly now that we -- at least since the last time talked have a little bit more clarity on kind of where the federal level reforms will be in terms of costing raise, on NFIP and so forth?
JMP Securities
Wow. That’s great.
And then my other question is related to the flood initiative, can you just update us on kind of, where it stands in the progress, I know it’s just kind of starting to rollout and particularly now that we -- at least since the last time talked have a little bit more clarity on kind of where the federal level reforms will be in terms of costing raise, on NFIP and so forth?
Paresh Patel
Yes. The flood product have been rolled out we are -- I think we’ve probably written 100 policies or so to-date.
Again as Proplet gets rolled out into more and more places the flood stuff goes along with it because it is a primary mechanism for quoting flood policies as well, so just with a roll out of a dozen agents we’ve picked up about 100 policies in a couple of months, so it gives you an idea as to how quickly this thing could ramp-up, obviously the modification of Biggert-Waters that was done a couple of months ago may affect the take up rate in the short-term but as those rate increases which are still there they are just sort of on the slower glide path flow through, we will pick up more business along the way and of course as is our nature the months in between we get to study the experience of what we’re seeing and optimize our systems and processes to take great advantage of that, yes.
Matt Carletti
Yes, now that’s great. And then last quick numbers question, just do you have gross written and net written premiums for the quarter handy?
JMP Securities
Yes, now that’s great. And then last quick numbers question, just do you have gross written and net written premiums for the quarter handy?
Paresh Patel
Richard’s looking them up as we speak, we may answer them after the next question if it takes a little second to find it.
Matt Carletti
That’s alright.
JMP Securities
That’s alright.
Richard Allen
It may take me a minute Matt.
Matt Carletti
You can answer it later, that’s alright. Thanks a lot and congrats on a nice quarter.
JMP Securities
You can answer it later, that’s alright. Thanks a lot and congrats on a nice quarter.
Paresh Patel
Okay.
Richard Allen
Matt?
Operator
Our next question comes from Casey Alexander with Gilford Securities. Please proceed with your question.
Casey Alexander
Hi, good afternoon. Two, I just want to kind of clarify what you said about, or what you’ve learnt about the reinsurance contract thus far.
Is my understanding that you’re paying a lower rate as a percentage of gross premiums, but since you’re buying more the absolute dollars is going to be similar to the year before?
Gilford Securities
Hi, good afternoon. Two, I just want to kind of clarify what you said about, or what you’ve learnt about the reinsurance contract thus far.
Is my understanding that you’re paying a lower rate as a percentage of gross premiums, but since you’re buying more the absolute dollars is going to be similar to the year before?
Paresh Patel
Casey let me clarify that in a different way, is that reinsurance rates are down considerably, we are buying more reinsurance basically because of two items, we’re buying more reinsurance, one because we have a bigger book so that inherently means you have to buy a little bit more but also it’s in some way so cheap we’re buying a little bit more because of that just in case something happens, but we’re doing this in the context of trying to keep our reinsurance thin, not in terms of percentages but in terms of absolute dollars, flat year-over-year, plus or minus a $1 million in the quarter shall we say.
Casey Alexander
Okay, so it is dollar is flat but because rates are down so much the actual coverage is up on a year-to-year basis?
Gilford Securities
Okay, so it is dollar is flat but because rates are down so much the actual coverage is up on a year-to-year basis?
Paresh Patel
Yes.
Casey Alexander
Okay, does that mean that you expect to have your probable maximum loss, I know it’s a bigger company than it was a year ago, is the dollar amount of the probable maximum loss likely to be in the same neighborhood or are you actually buying so much that the probable maximum loss could even be lower?
Gilford Securities
Okay, does that mean that you expect to have your probable maximum loss, I know it’s a bigger company than it was a year ago, is the dollar amount of the probable maximum loss likely to be in the same neighborhood or are you actually buying so much that the probable maximum loss could even be lower?
Paresh Patel
When you say probable maximum loss, you mean the top of the tower or you’re talking about the retention of the bottom of the tower?
Casey Alexander
The retention at the bottom of the tower.
Gilford Securities
The retention at the bottom of the tower.
Paresh Patel
Yes I think the retention at the bottom of the tower is going to be somewhat consistent with what was historically which is about…
Richard Allen
10% of statutory surplus.
Paresh Patel
Yes 15% of the year in surplus of at the end of 20 -- the previous year, so it would be around 18 million or so I believe?
Richard Allen
Yes.
Casey Alexander
Okay, alright great, that’s very helpful thank you. Secondly now that you have had your most recent Citizens takedown for six months or so, how is the attrition rate of the policies running compared to previous takeout that you’ve done?
Gilford Securities
Okay, alright great, that’s very helpful thank you. Secondly now that you have had your most recent Citizens takedown for six months or so, how is the attrition rate of the policies running compared to previous takeout that you’ve done?
Paresh Patel
Casey as we have said, years gone by, every takeout we do the attrition rate gets better and better. Attrition rate gets lower and less and less then we have to make sure it stayed that way right.
So we’re seeing more and more of the policies and I think the last we looked, our retention of this new Citizens takeout policies is actually running out neck and neck with the rest of our book, so mid to high 80s, yes.
Casey Alexander
Okay mid to high 80s, great and what was the total policy count at the end of the quarter?
Gilford Securities
Okay mid to high 80s, great and what was the total policy count at the end of the quarter?
Richard Allen
Approximately 160,000.
Casey Alexander
160,000, okay and the 200,000 shares that was repurchased, was any of that a part of the repurchase contract with Deutsche Bank related to the convertible debt issue or was that all separately related to the later announced share repurchase program?
Gilford Securities
160,000, okay and the 200,000 shares that was repurchased, was any of that a part of the repurchase contract with Deutsche Bank related to the convertible debt issue or was that all separately related to the later announced share repurchase program?
Paresh Patel
It was entirely to do with the later announced share buyback program.
Casey Alexander
Okay great and lastly…
Gilford Securities
Okay great and lastly…
Paresh Patel
Hang on, Casey one more thing about that. When we announced the buyback, when we usually say we’re going to do buyback we usually mean it and we basically follow through that’s what you’re saying, yes?
Casey Alexander
Right, alright, and that was, so you still have 32 million available on the buyback now?
Gilford Securities
Right, alright, and that was, so you still have 32 million available on the buyback now?
Paresh Patel
Yes.
Richard Allen
Yes.
Casey Alexander
Right, okay, and lastly this last week and it maybe early I mean this is just the last few days there has been any an enormous amount of flooding off in the Panhandle, should we be adjusting our models to a certain extent on the loss and loss-adjustment expenses to account for that, do you have any color? Have you seen had any influx of claims at the claim center and are your adjustors out there and giving you some color as to what you’re seeing out in the field?
Gilford Securities
Right, okay, and lastly this last week and it maybe early I mean this is just the last few days there has been any an enormous amount of flooding off in the Panhandle, should we be adjusting our models to a certain extent on the loss and loss-adjustment expenses to account for that, do you have any color? Have you seen had any influx of claims at the claim center and are your adjustors out there and giving you some color as to what you’re seeing out in the field?
Scott Wallace
This is Scott Wallace and to answer your question, the number of claims that we have received as a result of the rain event at the Panhandle is but -- a little bit more than a handful. We anticipate the total claims coming out of this activity, is probably going to be less than 20.
Casey Alexander
Okay, great.
Gilford Securities
Okay, great.
Paresh Patel
Casey adding a different color to that also is that we tend not to be very big market share wise in the area that’s been drenched by the water.
Casey Alexander
Right.
Gilford Securities
Right.
Paresh Patel
And the second part also that we will probably say is that, yes, there will be some activity we will pick some losses. We have picked up, I think as Richard said earlier losses in the…
Richard Allen
Palm Beach and Martin Counties.
Paresh Patel
Back in January I mean, the way we have always taken these things is that a; most of the policies, when we have these losses we take them as routine course of business, that’s the business we’re in, right.
Casey Alexander
Right.
Gilford Securities
Right.
Paresh Patel
So, there will be some stuff we would come pick up from this but one more thing just because of the nature of those losses. Those losses weren’t picking up is because it rained for 24 hours and produced about 20 inches of rain in 24 hours.
The claims we’re getting are not flood claims. We’re getting claims because people are used to liking that kind of thing.
Even with lots of flooding going on, we are not covering the flood policies up there yes.
Casey Alexander
Right.
Gilford Securities
Right.
Paresh Patel
Just thought we should clarify that we are in the flood business here.
Casey Alexander
Okay, understood. Alright thank you very much for taking my questions.
Gilford Securities
Okay, understood. Alright thank you very much for taking my questions.
Paresh Patel
Thank you.
Operator
The next question comes from Arash Soleimani with KBW. Please proceed with your question.
Arash Soleimani
Hi. Thank you.
I don’t know you’ve mentioned this earlier on the reinsurance program for June 1 is not going to be reinsurance for 1 in 100 or 1 in 150?
Keefe, Bruyette & Woods
Hi. Thank you.
I don’t know you’ve mentioned this earlier on the reinsurance program for June 1 is not going to be reinsurance for 1 in 100 or 1 in 150?
Paresh Patel
Arash there is a very simple answer to that it depends on which dataset you use as to what it means because while everybody is very precise in their modeling depending which model you use, you got a very different answer. But to give you a standard answer, I think basically if you use the OIR model the one that’s used by our regulators.
We are way north in terms of 150 approaching 1 in 200. If you use rating agency models, we are definitely north of 1 in 100 and that’s just a first event and plus we have enough coverage to exceed 1 in 50 and using rating agency models for the second event and then it goes on from there.
Arash Soleimani
Okay and my next question was in terms of your growth in Florida, I know, you said you’re trying to get to about 5% market share. Just looking at some of the TIV data by counting, I think it looks like right now between Pinellas and the Tri-County it’s about 52.5% of TIV in those areas.
So, the remainder if you get to the 5% market share, would some of that seek to sort of diversify that exposure or do you anticipate that it will be within those counties just trying to get a sense of how it will shakeout?
Keefe, Bruyette & Woods
Okay and my next question was in terms of your growth in Florida, I know, you said you’re trying to get to about 5% market share. Just looking at some of the TIV data by counting, I think it looks like right now between Pinellas and the Tri-County it’s about 52.5% of TIV in those areas.
So, the remainder if you get to the 5% market share, would some of that seek to sort of diversify that exposure or do you anticipate that it will be within those counties just trying to get a sense of how it will shakeout?
Paresh Patel
Yes, Arash I would tell you do group it by a different fashion. I would group it as Tri-County which is Dave Ward and Palm Beach and the other way to group Pinellas is to group Pinellas with Hillsborough or the greater Tampa Bay Area and roughly speaking what we have historically tried to maintain is about sorted exposure in Tri-Country, a sorted exposure in the Tampa Bay area and a sorted exposure in the rest of the state.
So I would imagine that as we grow the business, we will be maintaining roughly those ratios.
Arash Soleimani
Okay, perfect. And just lastly in terms of sort of on the topic of growth still, what are the plans for I guess any sort of expansion outside of Florida, I know, some of your competitors have some aggressive plans outside of the state.
I know you yourself mentioned Alabama as one avenue just trying to look, I guess, five years down the road, are there other stats outside of Alabama also that would interest HCI or what’s sort of the trajectory there?
Keefe, Bruyette & Woods
Okay, perfect. And just lastly in terms of sort of on the topic of growth still, what are the plans for I guess any sort of expansion outside of Florida, I know, some of your competitors have some aggressive plans outside of the state.
I know you yourself mentioned Alabama as one avenue just trying to look, I guess, five years down the road, are there other stats outside of Alabama also that would interest HCI or what’s sort of the trajectory there?
Paresh Patel
Yes given you’re using a five year timeline, I will tell you that yes in that kind of timeframe we would be in multiple states probably more up the Eastern Seaboard that kind of thing maybe a selective couple of places along the Gulf Coast, but those all look probably in our future shall we say.
Arash Soleimani
Okay, great. Thanks for the answers and congrats on the quarter.
Keefe, Bruyette & Woods
Okay, great. Thanks for the answers and congrats on the quarter.
Paresh Patel
Thank you.
Operator
Our next comes from Geoff Dancy with Cutler Capital Management. Please proceed with your question.
Geoff Dancy
Hi Paresh how are you doing?
Cutler Capital Management
Hi Paresh how are you doing?
Paresh Patel
Hi Geoff, how are you?
Geoff Dancy
I am good, I am good, I have got a question for you. First off happy to see the share repurchases and I am wondering when you at those share repurchases and consider any increase in your dividends how do you balance those two things?
Cutler Capital Management
I am good, I am good, I have got a question for you. First off happy to see the share repurchases and I am wondering when you at those share repurchases and consider any increase in your dividends how do you balance those two things?
Paresh Patel
Very simply in the following manner right, we’ve always sort of been mindful of the idea of how do we return some of the, we return quite a return to our shareholders based on their investment kind of thing and clearly we have the two levers which is dividends or a buyback. And really our goal has actually been very mindful and observed and it changes as the world changes in terms of when you declare dividends versus when you buy back shares, because they not only consider the share price but also the tax scenarios and where we are and what it would mean to shareholders et cetera.
So there’s number of factors that go into it, I think currently there seems to be more favored to see any growth would be more in buybacks than in dividends but, I say that changes because as circumstances would change, I am sure that would change their minds too, yes.
Geoff Dancy
And hopefully those circumstances are the stock price backup in the 40s or higher?
Cutler Capital Management
And hopefully those circumstances are the stock price backup in the 40s or higher?
Paresh Patel
Yes. I mean just to make an illustration.
I think as the stock was and I will just do an extreme number so nobody thinks I am making a prediction if the stock was 85 we would probably be doing more dividends and less buyback right.
Geoff Dancy
Okay. And you had mentioned before that, as you do more takeouts from Citizens your attrition improves, why is that?
Cutler Capital Management
Okay. And you had mentioned before that, as you do more takeouts from Citizens your attrition improves, why is that?
Paresh Patel
I can only say it from -- I can speculate on the matter, but I think what it is, is as time has gone on and don’t forget we are now seven years, eight years into this thing. People have developed comfort with our reputations, our history and how we’ve created the previous takeout, both from agents from their neighbors and just general conversation around the states, if that helps in terms of retaining people.
Also we have gone better at saying, we only want to pick people who we know are going to stay with us, because one of the characteristics of how we run our business is that we like to take people on as customers and then have them never leave, right. So we’re not really looking to have people come onboard and leave it in a matter in a weeks or months yes it’s inefficient.
Geoff Dancy
So when you think about getting up to and I know this 5% market share number you had I think that’s many years old now that number, I wonder is that still the number that you’re looking for in Florida, what do you think is optimal. And then how do you get to where -- how do you get to what you think is optimal is it through, how much of it is through takeouts and how much of it is through organic growth?
Cutler Capital Management
So when you think about getting up to and I know this 5% market share number you had I think that’s many years old now that number, I wonder is that still the number that you’re looking for in Florida, what do you think is optimal. And then how do you get to where -- how do you get to what you think is optimal is it through, how much of it is through takeouts and how much of it is through organic growth?
Paresh Patel
Okay. I am going to answer this like on a five year timeframe like your previous question -- previous caller asked right.
I think if you’re going to get there over the next five years, I suspect it’s not going to happen on a step by, step by, step basis, so you would see steady progress month-over-month that’s just now how we’ve grown the company. So it be unusual to expect that to happen going forward, it seems more likely what’s going to happen is we maintain the size of business we are and then we’re going to get from where we are and just to put to 5% of perspective it’s about 250,000 policies.
So the question is where do the next 100,000 policies come from? They will come not being written one at a time, they will probably come because we do a block, the takeout or if there is a hurricane it could come in the block of an acquisition of somebody or somebody having an issue et cetera.
I mean much as everybody tends to think that those opportunities will not arise just in the last quarter we’ve had two or three opportunities of acquiring books. I am speaking about them now because I don’t think any of the three of them are going to occur.
But even in this market that stuff was available. So that’s probably how we are going to get there.
We are going to get there in, going along flag for a while and then suddenly leaping by 50,000 policies or so.
Geoff Dancy
Sure.
Cutler Capital Management
Sure.
Paresh Patel
And do that twice any of the area.
Geoff Dancy
It’s always competition for those books is it the competition that’s making it not attractive to take those on?
Cutler Capital Management
It’s always competition for those books is it the competition that’s making it not attractive to take those on?
Paresh Patel
Those are the two books I will, there is a question about price and what it would cost you to have those books and we also have a different item that we have to be concerned about. We have an existing book of business that is performing very, very well it’s very easy to grow the top-line by taking on more business so isn’t -- the new business isn’t up to our standards what’s going to happen is that the existing business is going to have subsidized that business for a while, while we clean it up.
And to give you an idea, there’s been lots of talk lately about how many -- how much business people are writing et cetera. What we’re looking at internally is where we are basically binding about 6% or 7% of the inquiries we get for new business, putting it differently we could grow our voluntary book almost 15-fold more from the inquiries we’re already getting.
If we just took everybody but the problem would be you have got a top-line at the cost of the bottom-line and we’ve always been more focused on the bottom-line.
Geoff Dancy
Alright, thanks for that explanation, and my last question for you, is 5% still what you think is the right number to be in the Florida market?
Cutler Capital Management
Alright, thanks for that explanation, and my last question for you, is 5% still what you think is the right number to be in the Florida market?
Paresh Patel
5% I think easily makes sense, I think and you are hearing it here first given how good our staff and systems and people are getting we may be able to grow this thing to 6% or 7% or 8% and maintain the margins.
Geoff Dancy
Sure?
Cutler Capital Management
Sure?
Paresh Patel
Yes.
Geoff Dancy
Alright, great, thank you for your time.
Cutler Capital Management
Alright, great, thank you for your time.
Paresh Patel
Thank you. Operator?
At his time this concludes our question-and-answer session. I would like to thank everyone for joining us on the call and most importantly we want to thank our shareholders, employees, agents and most importantly our policyholders.
We look forward to continuing success in 2014. Thank you everyone and have a great evening.